Caucasus “golden triangle” cooperation steams ahead

By Clare Nuttall in BucharestNovember 1, 2017

A full decade after the agreement to build the Baku-Tbilisi-Kars (BTK) railway was signed, the line was ceremonially opened at the port of Alyat near the Azeri capital on October 30. The 826km railway connects Azerbaijan’s Caspian coast to Turkey via Georgia, and, as top officials from the participating countries stressed at the launch, will considerably cut travel time between China and Western Europe.

Construction of the BTK railway, which was not without its difficulties, was the product of the long-lasting and wide-reaching collaboration between Azerbaijan, Georgia and Turkey. Forged by geopolitics, the alliance between the three countries has resulted in commercial ties which have steadily strengthened with the completion of successive trilateral mega projects, the Baku-Tbilisi-Ceyhan oil pipeline, the Baku-Tbilisi-Erzurum gas pipeline and now the BTK railway. Indeed the three-pointed cooperation has sometimes been referred to as a “golden triangle” of trade and investment in a part of the world where political strife has often derailed economic cooperation.

Finally completed, the new line runs from Alyat across Azerbaijan to the Georgian capital then on to Kars in eastern Turkey. Its initial capacity is 1mn passengers and 5mn tonnes of freight a year, but there are plans to boost this as high as 3mn passengers and 17mn tonnes of freight by 2034.

The line forms part of a wider transport route that runs from the Khorgos pass on Kazakhstan’s border with China across to the Caspian Sea, where ferries run from Kazakhstan’s Aktau port to Alyat. At its western end, it links to Turkey’s existing rail infrastructure, and then on to Europe.

Speaking at the opening ceremony – where he switched the points alongside his Turkish counterpart Recep Tayyip Erdogan and the prime ministers of Georgia, Kazakhstan and Uzbekistan to allow the first trains to roll along the line – the project’s initiator Azeri President Ilham Aliyev stressed that it represented “the shortest and most reliable link between Asia and Europe.”

Erdogan added that the link would create an uninterrupted railway line from London to China and specified what this meant for bringing down the time and cost of freight shipments: “Once all the high-speed rail lines come into service, the cargo originating from China will reach the EU countries … within 12-15 days thanks to the Baku-Tbilisi-Kars railway,” he said.

Since the railway was first proposed, efforts to recreate the historic overland silk routes that once criss-crossed Eurasia have accelerated. Beijing’s 2013 announcement of the One Belt One Road initiative, which includes plans to develop the so-called New Silk Road across Eurasia have seen China hone its attention on Central Asia and the Caucasus – along with several other world regions – as an important component of the land route.

“The geostrategic location of our countries gives us a unique possibility to serve as a bridge connecting Europe and Asia, which is why I am convinced that the new railway will drastically change the current economic reality and will put in place brand new conditions for development both in the region and beyond,” commented Georgian Prime Minister Giorgi Kvirikashvili, describing the line as the “foundation for a new Eurasian bridge”.

Tricky tracks

Building BTK didn’t always run smoothly. Initial difficulties in securing financing – not least because part of its objective was to exclude Armenia from the regional transport map – followed by security concerns and rising costs resulted in repeated delays past the original inauguration target of 2010. The total cost of the project reportedly spiralled to over $1bn, up from the initial estimate of just over $400mn, with most of the funding coming from Azerbaijan.

Erdogan referenced the delays by quoting an Azerbaijani proverb: “The onion eaten with hardships is more delicious than the honey eaten with indebtedness … Likewise, this project is precious because it has been implemented with hardships, self-sacrifices and great efforts,” he commented.

Those behind the project go beyond the three countries directly involved. The prime ministers of Kazakhstan and Uzbekistan both took part in the opening ceremony, alongside senior officials from Tajikistan and Turkmenistan. Like the Caucasian countries, Kazakhstan has been seeking to establish itself on the new Silk Route as a key transit state between China and Europe. Astana has launched numerous initiatives including building new railways to create a more direct east-west route (previously Central Asia’s railways were north-south oriented as the USSR’s rail network radiated out from Moscow). Meanwhile, under its new President Shavkat Mirziyoyev, Uzbekistan is cautiously looking to open up its economy and reaching out to international investors.

With an eye to better links to China for its member states, the EU’s delegation to Azerbaijan also welcomed the opening of the line saying in a statement that the project “will provide fast and reliable land connection between Europe and Asia along the ancient Silk Route”.

Armenia excluded

Aside from the wish to improve regional and international transport connections, the BTK railways has a further benefit for Azerbaijan (and to a lesser extent Turkey); it excludes Baku’s archenemy Armenia.

This is despite the fact that the most direct connection between Azerbaijan, which remains locked in a largely frozen territorial conflict with neighbouring Armenia, and Turkey, which closed its border with Armenia in 1993 in support of Azerbaijan, would have been through Armenia.

This exclusion from regional projects and the consequent missing out on new energy sources and transport links has further isolated Armenia economically from its neighbours, and forced Yerevan to look for other partners. Despite reaching out to Iran, the country has mainly been forced fairly into the Russian embrace, resulting in Yerevan giving up on its aspirations for EU integration and opting to join the Russian-led Customs Union instead. Some opposition figures may be pushing for an “Armexit” from the Eurasian Economic Union that grew out of the Customs Union, but many believe the country has no other option.

From the other side, Azerbaijan’s and Turkey’s hostile relations with Armenia were one of the factors pushing the two states together, on top of their historic and cultural links. The third state in the so-called “golden triangle” of the Caucasus, Georgia, was motivated more by its own hostile relationship with regional giant Russia, which has forced it to look for new allies.

Cooperation between the three states dates back to the beginning of the 1990s, when newly independent Azerbaijan and Georgia had already been shaken by wars as the regions of Nagorno Karabakh, Abkhazia and South Ossetia demanded their independence, and were looking for supporters to balance Russia’s clout in the region. “Baku and Tbilisi promote this regional triangle in order to cultivate regional political support for the peaceful settlement of their ongoing conflicts,” wrote Shahbazov. At the same time, Ankara was energetically forging links with the Turkic speaking former Soviet Republics.

Relations that started out as mainly bilateral and heavily reliant on rapport between individual leaders have been increasingly institutionalised on a trilateral basis. This has been further strengthened by the successful implementation of joint projects like BTK and regional oil and gas pipelines.

From geopolitics to economics

The development of commercial links based on this informal geopolitical alliance born nearly three decades ago has facilitated trade and investment among the three states, and led to the construction of major regional infrastructure such as BTK, which Fuad Shahbazov, foreign affairs analyst at the Strategic Research Center of Azerbaijan Republic, described in a comment for the Jamestown Foundation as “one of the most tangible results of the cooperative triangle” of Azerbaijan, Georgia and Turkey”.

The launch of the BTK railway is expected to have a knock on effect by further boosting trade and investment among the participating countries, as well as facilitating transport over the wider Eurasian landmass.

Already, commercial ties among Turkey, Azerbaijan and Georgia are going from strength to strength. Azerbaijan is one of the main foreign investors in Turkey, with an FDI stock of $11.7bn and is looking to increase that to $20bn by 2020. Officials have vowed to increase the trade turnover between the two countries, which stood at $3.3bn in 2016, up to $15bn.

Trade turnover, especially between Azerbaijan and Turkey, is set to gain a further boost when the offshore Shah Deniz II gas project comes online in 2019, allowing Baku to increase its gas exports to Ankara by 10bn cubic metres. However, the two countries are also working on expanding trade and investment in areas like manufacturing, pharmaceuticals and defence industries.

Azerbaijan is also a major investor in Georgia, where its commitments are part of the “non-stop growth” of the country’s foreign direct investment (FDI) in the post-Soviet space that topped $2.4bn in 2016, according to a recent Eurasian Development Bank (EDB) report. Azerbaijan and Turkey ranked as the leading sources of FDI in Georgia, with $558mn and $203.5mn invested respectively, Geostat reported in August.

Meanwhile, Turkey consistently ranks as one of Georgia's top three investment and trade partners. Turkish companies and investors are particularly active in hospitality, retail and real estate.

Changing times

The BTK railway fits very nicely with Turkey’s current geopolitical ambitions, which have shifted away from EU integration following the failed coup in 2016 and subsequent political clampdown. Since then “Ankara’s foreign policy has been rapidly shifting toward the East, including the Caucasus” wrote Shahbazov. The BTK railway also chimes with this ambition by providing a gateway to Central Asia.

While geopolitical push factors have ensured relations have remained strong, this has not been without some rocky moments.

A 2016 report published by Konrad-Adenauer-Stiftung claims that from the harmony of the 1990s, foreign policy policies started to diverge back in the early 2000s when Russia “began to flex her muscles” in the region, culminating in the Russian-Georgian war of 2008. There were also temporary hiccups during an attempt by Turkey and Armenia to normalise their troubled relations and when the political party Georgian Dream came to power in 2012, arousing speculation that the country could shift towards Moscow with Bidzina Ivanishvilli, a billionaire with many investments in Russia, at the helm.

As, the Konrad-Adenauer-Stiftung report notes, “the changing dynamics in regional affairs, and the potential for divergent perceptions of these developments, constitutes a key challenge.” Specifically, the report points to Russia’s role in the region, from the ups and downs of Moscow’s relationship with Ankara to the Russian annexation of Crimea which altered the balance of power in the Black Sea region. The return of Iran from a pariah state to the current focus of intense investor interest has also raised new questions.

But with the conflicts in Azerbaijan and Georgia remaining frozen, and no end in sight to the hostility between Azerbaijan and Armenia, the motivation for the two post-Soviet states to engage with each other and Turkey remains as strong as ever. And despite a recent rapprochement with Russia, the relationship between Ankara and Moscow has been a tumultuous one, while the Middle East is as unstable as ever, so for Turkey there are still very solid benefits to its relationship with its near neighbours.

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